Translation: Original published in Finnish on 10/28/2026 at 7:45 am EET.

Finnair's Q3 figures were in line with the preliminary information, and the company reiterated its guidance, which it raised a couple of weeks ago. We lowered our 2027 estimates due to rising fuel prices and a low hedging ratio. We consider the stock's valuation to be high, particularly given next year's weaker earnings, and we reiterate our Sell recommendation. We lower our target price to EUR 3.5 (was EUR 3.8) due to lower estimates.

Q3 was in line with preliminary data

Revenue grew by 14% to 953 MEUR from the comparison period, which was impacted by industrial action, driven by strong demand and growth in freight (+35%) and ancillary services (+16%). As per the preliminary data, the adjusted EBIT was 84 MEUR (Q3’25: 51 MEUR). Traffic diverted to the northern route due to the situation in the Middle East, which supported Asian passenger revenue and cargo but largely normalized during the quarter, in our estimation. A hedging ratio of around 80% kept the increase in fuel costs under control. Operating cash flow improved significantly, and net debt/adj. EBITDA was a modest 0.6x. The number of passengers increased by 7%, and the load factor rose to 81.8%. The more than 20% increase in ticket liabilities also signals strong bookings for the remainder of the year.

Only a third of next year's fuel costs have been hedged

The guidance (revenue of 3.5–3.6 BEUR and adj. EBIT of 175–220 MEUR) leaves a range of 13–58 MEUR for Q4, and we expect the 2026 adj. EBIT to be 193 MEUR. Q4 earnings are weighed down by factors such as fuel prices and lower aircraft lease income. However, approximately 70% of fuel costs are hedged in Q4, which limits the impact of higher prices.

We have slightly lowered our 2027 forecasts due to continued fuel price increases in October. In addition, we expect capacity growth in Asia and the normalization of operations among competitors in the Persian Gulf to weigh on unit revenues next year. Finnair has hedged only one-third of its total fuel costs for 2027. In Q1'27, the hedging ratio is still around 60%, but it will drop significantly for the important summer season. Finnair did not significantly increase its hedging due to rising prices during Q3 and is now at the lower end of its hedging policy. We expect the company to gradually increase its hedging during the winter season, even if prices remain high.

Given the current high prices, we estimate that fuel costs will have a clearly negative impact on earnings. However, our estimates are based on Bloomberg's forecasts of falling fuel prices during 2027, which would alleviate Finnair's situation. In our view, if fuel prices remain at current levels, it poses a negative risk to our 2027 forecasts, as it is unlikely that ticket prices can be raised accordingly. In our forecasts, the decline in fuel prices during 2027–28 will support a recovery in earnings in 2028, bringing them close to this year's levels.

Valuation is quite high

Adjusted P/E ratios, after deducting deferred taxes, for 2026 and 2027 are approximately 6x and 16x, and adjusted EV/EBIT multiples are around 8x and 13x. Based on 2026 earnings, the share trades within our accepted ranges (6x–9x), but based on 2027 earnings, it clearly trades above them. We also consider the P/B ratio (1.1x) to be high because the return on equity remains below the required return based on our estimates, and the DCF value (around EUR 3.6) is below the current share price. Consequently, the expected return is low. Compared to its peers, Finnair is valued lower based on this year's multiples, but significantly higher based on next year's. Due to the high-risk profile of airlines, it is challenging to rely on an increase in the sector’s valuation, and for the stock to demonstrate clear upside, earnings growth would need to surpass our forecasts.